Photo by Travis Pazin for Mission Minis
Opportunities for couponing for local businesses have exploded with the arrivals on the scene of Groupon, Groop Swoop, LivingSocial, Zozi and goodness knows how many more are yet to come. It’s a business with relatively low barriers to entry (a site, an E-mail list and a determined sales staff) and relatively low operating costs. In its first year of operation Groupon looks to do over $100 million in revenue, though I’d imagine that a huge chunk of that goes to cost of sales for the businesses that take advantage of its service.
Group coupons are great for attracting new customers – but if the offer is too sweet, perhaps these new customers are coming at too great a cost. Take for example the recent travails of Mission Minis, a cupcake bakery in San Francisco’s Mission District. When its 50% off coupon went out to Groupon’s subscribers on March 11, all hell broke loose for the tiny business. Completely overwhelmed by demand, the bakery went into overdrive. After a couple of weeks of around-the-clock baking,three staffers threatened to quit.
Beyond the strain on its valuable staff, there are other key elements to consider in this story. First, for a period of weeks 65-80% of Mission Minis’ sales were discounted to 50%. Even today 15-20% still come in with the coupons. That’s some pretty serious long-term price erosion. Does this volume really make up for the discounting and keep this a viable business? And have the inadvertently created a customer base that’s primed to come in only when the bakery is discounting?
Also going unaddressed is the potential hit to quality. The staff’s threat to leave goes straight to the heart of the bakery’s USP: great cupcakes. Were these cupcakes not as good during the discount period as during normal operations? If Mission Minis couldn’t keep quality up, that would be a threat to the real value of the discounting: long-term full-price loyal customers.
And perhaps that’s the real rub. Mission Minis is a new business that needed to attract to make its name. But if your business is established, are you better off attracting a potentially fickle price-sensitive customer or by spending more to surprise & delight your best current customers?
Key questions to ask before signing up to be on a group coupon:
- Can my business deal with the increased volume and keep its product quality where I want it?
- Will my business model survive weeks or months of aggressive discounting?
- Am I creating customers that I’ll keep? Or want to keep? Am I better off doing something for my current customers?
Mission Minis
Mission Local: Collective Buys by Groupon and Others = Customers + More
NBC Bay Area: Internet Coupons Nearly Iced Popular Cupcake Shop
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